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Why does China's blockade of a city cause aluminum prices to skyrocket?

Located near the border with Vietnam, the city of Bach Sac (Baise) is nicknamed the "aluminum capital of southern China".

The strict blockade, the implementation of the policy of "closed-door closure" for the goal of  Zero Covid this week in a city with a population of only about 3.6 million people, is also relatively unknown in China, global aluminum prices skyrocketed to a 15-year high.

Photo of aluminum price movements over the past 15 years (from February 2007 to present)

According to AFP, aluminum, a common metal in production and consumption, rose to $ 3,236 per tonne in the afternoon session of February 8 on the London Metal Exchange, a record level recorded in 2008. After that, aluminum price fell somewhat back to $3,223/ton.

Why has the outbreak of Covid-19 and the lockdown in Bach Sac stoked worldwide fear about aluminum - a key metal commodity for the global manufacturing industry?

According to Mr. Daniel Briesemann, Commerzbank (Germany) said that the increase in aluminum prices is primarily due to concerns about supply.

In Europe, hundreds of thousands of tons of aluminum have been cut due to high energy costs. Meanwhile, in China, another city of several million people was put under social distancing over the weekend after new cases were discovered and raised concern.

According to this expert, there is fear that the blockade of this city will hinder the transportation of aluminum, thereby further limiting the supply.

Where is Bach Sac (Baise)?

Located near the border with Vietnam, Bach Sac is nicknamed the "aluminum capital of southern China", so once the city was locked down, the situation of aluminum production of the People's Republic of China as well as the industry. globally are affected.

Home to about 3.5 million people, Bai Sac is China's leading aluminum mining and manufacturing center.

The city produces about 2.2 million tons of goods a year – accounting for more than 80% of production in this resource-rich Guangxi region of China.

Meanwhile, Guangxi is China's main alumina export region, exporting about 500,000 tons of aluminum components per month to the market.

Besides, China is the world's largest aluminum producer. Aluminum is an important ingredient in key industries including component manufacturing, auto manufacturing, construction and consumer goods.

Why was Bach Sac blocked?

People line up for PCR testing in Duc Bao district, Bach Sac city, Guangxi Zhuang Autonomous Region, southern China, on February 6 - Photo: VCG

Although only fewer than 190 positive cases of Covid-19 have been recorded, the outbreak of coronavirus in Bach Sac is in fact very small compared to the outbreaks of pneumonia originally named Wuhan  in other regions. In the world.

However, China does not have a flexible adaptation strategy to the Covid-19 epidemic, but pursues the goal of Zero Covid, applying strict and targeted blockade at the outbreaks, restricting travel and testing every day. series to eliminate pathogens.

Bach Sac was completely closed on Monday, leaving most of the city's residents confined to their homes and others unable to leave the rural counties and towns under the city's jurisdiction.

The extremely draconian national Covid-19 strategy has helped China maintain some economic growth during the pandemic, however, the implementation of these national policies has caused frequent disruptions to the economy. with major production and logistics centers in recent months.

How does the Bach Sac blockade affect world aluminum prices?
The Bach Sac Local Industries Association said on Tuesday that while aluminum production was largely normal, the transportation of billet and raw materials was severely affected by the travel restrictions in the country. closing time, city blockade.

This also raised concerns about supply shortage from China and then around the world.

A large industrial park in Bach Sac where a number of factories have been blocked, stopped production, affecting the movement of workers, transportation and supply of raw materials and finished aluminum products.

However, some alumina refineries in Guangxi have stopped production because of a serious epidemic outbreak.

Huayin Aluminum, a large metallurgical plant in Baishak, has cut production capacity by about 1.2 million tons due to transportation restrictions as well as traffic difficulties, according to the leading research unit. Chinese Antaike.

Is Bach Sac the only reason for the increase in aluminum prices?

Analysts say that the increase in global aluminum prices was triggered by the blockade of Bach Sac, close to the border with Vietnam, however, there are other key factors to be noted.

In which, the time of Bach Sac blockade also contributed to the galloping uptrend of aluminum prices on the market today.

China's domestic shortage of aluminum both raw materials and finished products was exacerbated by the Lunar New Year holidays, during which most factories nationwide had to suspend or reduce output.

Then, after a long break during the  Lunar New Year, came the blockade of the whole city located near Vietnam. This means that inventory cannot be supplied to the market in a normal and convenient way.

According to SMM, aluminum prices are expected to increase after the holiday ending Monday, due to low domestic inventories and sustained demand from manufacturers.

Furthermore, Antaike said on Tuesday that alumina industries in three other Chinese provinces were also forced to reduce output.

The global aluminum market is facing a large output deficit this year, with demand exceeding supply as the world economy recovers from the Covid-19 pandemic.

Moreover, current aluminum production is related to the stability of other sources of supply.

Analysts say that the crisis in Russian-Ukrainian relations is taking place at the moment, causing concern that gas supplies to Europe from major Russian producer Russia will be affected if the situation escalates. ladder.

US President Joe Biden made it clear on Monday during a meeting with German Chancellor Olaf Scholz that the massive Nord Stream 2 gas pipeline from Russia to Europe must be stopped if Moscow "invades Ukraine". However, this scenario for the Kremlin is just "fantasy".

City Index analyst Fiona Cincotta told AFP that aluminum production requires a significant amount of energy and gas is the main source of fuel. Fears that the Nord Stream 2 project might be halted is pushing aluminum prices higher.

Geopolitical tensions between Russia and Ukraine have not only pushed up oil and gas prices, but also metal prices.

According to Goldman Sachs, the energy crisis in Europe and China, coupled with strong aluminum demand, could push the 66 million metric ton aluminum market into inventory depletion by 2023.

Analysts of Goldman Sachs said that the aluminum market will face a strong price increase this year. Aluminum supplies are already low, while shortages continue in China and the rest of the world.

The Bach Sac Aluminum Industry Association said that the local government is currently actively coordinating to issue passports to manufacturing and shipping enterprises to soon stabilize the aluminum market, first of all in China. 

(according to Sputnik Vietnam, February 10, 2022)